This country-specific Q&A provides an overview of Restructuring & Insolvency laws and regulations applicable in Denmark.
What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?
Danish law allows for a variety of securities that can be granted over both immovable and movable assets.
The formalities required for perfection of such security rights differ. However, the general rule is that charges relating to tangible and intangible assets must be registered with the Land Registration Court.
Non-compliance leads to other creditors not having to abide by the security.
Further, if the security right is not granted no later than simultaneously with the debt creation, the security right can be deemed void in subsequent insolvency proceedings of the debtor.
Immovable property / real estate
Danish law allows for three kinds of mortgages of real estate: a (regular) mortgage, an indemnity bond and an owner’s mortgage. All three kinds are subject to registration with the Land Registration Court.
A mortgage is issued as a fixed amount corresponding to the actual debt. The debtor will usually service the loan.
The indemnity bond provides security for a specific creditor within a certain maximum and does not entail a requirement for the debt to be fixed.
The owner’s mortgage is a reservation made by the owner. The owner can transfer this reservation to a creditor as security for an obligation. The reservation is for a fixed amount but does not entail a requirement for the debt to be fixed.
Charges relating to movable assets must be registered with the Land Registration Court, excluding aircrafts, ships, and assets taken in possession by the creditor as other rules apply in respect of such assets.
Danish law does not allow for charges relating to unspecified assets except through a floating company charge (“virksomhedspant”), a pledge of receivables (“fordringspant”) or of a business’ movable property, but not stock, if the business is operated from leased premises. All these security rights must be registered with the Land Registration Court.
Through a “virksomhedspant” a business can pledge its trade receivables, inventory, operating equipment, livestock, intellectual property, and some vehicles. The floating charge crystalizes if insolvency proceedings commence against the debtor. At this point, no new asset can be subject to the charge.
Other kinds of charges relating to movable assets may be issued regarding only specific and identifiable assets.
Pledges of unlisted shares must be notified to the company. A pledge of a receivable must be notified to the debtor of the said receivable. Pledges of listed shares must be registered with the financial institution holding the shareholder register.
What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?
Danish law distinguishes between pledges and mortgages in relation to enforcement.
Enforcing mortgages requires the creditor to execute and enforce the security with the Enforcement Court.
As for pledges of a specific right/receivable, and charges where the creditor is of possession of the asset, the creditor can generally claim the pledged right(s) without the involvement of the Enforcement Court.
What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?
The insolvency test is a liquidity test: can the debtor fulfill its obligations as these falls due, and is this not merely a temporary inability.
Management of the debtor is obligated to ensure sufficient capital reserves to fulfill current and future obligations. The Danish Companies Act contains rules on how the management should act towards the shareholders if the company’s equity falls below half of the share capital value.
Management is obligated to cease operations and file for insolvency proceedings if continued operation will cause (additional) loss for the creditors or others. If management does not comply, each member of the management might incur personal liability of losses suffered by creditors and the debtor.
The trustee is obligated to assess whether management should be held liable and/or should be disqualified for bankruptcy reasons. Disqualification is decided upon by the Bankruptcy Court after legal proceedings initiated by the trustee, and the court can disqualify management members of the business from taking part of the management in a limited liability company for up to three years.
What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?
Currently, two Danish formal insolvency procedures exist: Restructuring and bankruptcy. Both require insolvency, cf. question 3 above.
The purpose of restructuring is to improve insolvent debtors’ possibilities to continue their activities through either a business sale or a compulsory composition. Please see answers to question 8 for further details on restructuring proceedings.
In bankruptcy, the trustee appointed by the court is mandated to liquidate the debtor’s assets and wind up the business. The management is stripped off all mandates.
The court supervises the trustee’s administration of the estate. The court must approve the financial statements for the proceedings to be concluded.
The management is obligated to answer the trustee’s question(s) to assist the trustee in assessing the business of the debtor.
There is no set timeframe for the bankruptcy process, and the time the process takes to complete depends on the size and complexity of the estate.
How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?
The order of the priority of the unsecured creditors is stated in the Danish Bankruptcy Act’s rules on dividend distribution. As for the distribution is a “waterfall” (priority) scheme:
Costs of the bankruptcy proceedings and the costs of the administration of the estate are covered.
Reasonable costs of attempted restructuring,
Employees’ salary claims,
Supplier’s claims for some specific duties,
Ordinary claims. These include all unsecured creditors who do not have a claim covered by the categories listed above or below e.g., trade creditors, unsecured loans, damages, etc. This is the main category and the starting point for all creditors’ claims.
Interest accrued after the bankruptcy order, gifts and fines are the last items to be covered.
Only if a creditor has accepted a subordination prior or during the proceedings will the claim (including shareholder loans) become subordinated.
Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?
The Danish Bankruptcy Act contains rules on avoidance of pre-proceeding transaction.
The trustee is obliged to investigate the debtor’s transactions and assess whether any transactions are avoidable, and, in the affirmative, the estate will initiate proceedings against the receiver/beneficiary. Legal proceedings must in general be initiated no later than one year from the date of the bankruptcy order.
Avoidable transactions include gifts, improper payments of debt, transactions that evade the estate’s rightful assets and transactions with which the debtor’s debt increases.
Depending on the type of the transaction, the beneficiary of a voidable transaction will have to either return the benefit of the transaction or compensate the loss suffered by the estate by the transaction.
What form of stay or moratorium applies in insolvency proceedings against the continuation of legal proceedings or the enforcement of creditors’ claims? Does that stay or moratorium have extraterritorial effect? In what circumstances may creditors benefit from any exceptions to such stay or moratorium?
Insolvency proceedings put a stay against all other insolvency proceedings and enforcement of creditor’s claims. Further, a creditor cannot file an ordinary lawsuit to obtain payment against the debtor as such claims will be included as part of the process of the estate’s claim review.
If the debtor is a natural person, the stay only has temporary effect until the proceedings have been concluded. If the debtor is not a natural person, the entity will dissolve after the proceedings have been concluded, leaving uncovered creditors with no debtor to their claims.
The trustee will have to decide on behalf of the estate whether the estate will continue as a party to a litigation initiated prior to the proceedings.
What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play?
Danish law includes rules on in-court restructuring, but not informal, out-of-court restructurings. The rules are included in the Danish Bankruptcy Act and were amended in 2021, cf. the answers question 21 below.
Both the debtor and creditors can file for restructuring when the debtor is insolvent. The management remains in control of the day-to-day operations, but an administrator – appointed by the Bankruptcy Court – must accept all major transactions.
The proceedings must be concluded by either a business sale or a compulsory composition. The creditors will vote on a restructuring plan and on a final proposal.
Restructuring proceedings follow strict timelines and cannot extend beyond 11-12 months. The timeframe is as follows:
One week after proceedings commenced:
the administrator must send out a notice to all known creditors.
Four weeks (but can be extended up to eight weeks):
an in-court creditors’ meeting on approval of the restructuring plan must have taken place; and
one week prior to the meeting, the administrator must send the proposed restructuring plan, outlining the general terms of the plan, to all creditors and the court.
the administrator must send a report on all material information and accounts of the business during the proceedings.
Six months after the first meeting (but this can be extended up to a total of four months)
an in-court creditor meeting on approval of the restructuring proposal must take place; and
the administrator must send the restructuring proposal to all known creditors two weeks before this meeting.
The Bankruptcy Court will have to approve the restructuring proposal after the voting.
Under the new rules, a fast-track business sale scheme is possible, i.e., a transfer can be executed without voting, and this cannot be deemed void later unless a creditor objects within five days of receiving notice on the proposed transfer.
Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?
New financing can be obtained and secured to the same extent as prior to the proceedings. No rules of super-priority apply.
Can a restructuring proceeding release claims against non-debtor parties (e.g. guarantees granted by parent entities, claims against directors of the debtor), and, if so, in what circumstances?
Only if the adopted restructuring proposal contains provisions granting for such release, the proceedings can release claims against non-debtor parties.
Is it common for creditor committees to be formed in restructuring proceedings and what powers or responsibilities do they have? Are they permitted to retain advisers and, if so, how are they funded?
Danish law does not allow for formation of committees during restructuring proceedings.
Creditor committees can be formed during bankruptcy proceedings, but they are only of an advisory nature. The trustee must inform the committee of all significant transactions before they are executed.
How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any ability for either party to disclaim the contract?
Contracts and obligations are only binding upon the debtor after the restructuring proceedings or bankruptcy proceedings if the administrator decides to let the contract(s) continue. The contracting party cannot in general legally prevent the administrator from adopting the contract(s). If continued, the company/estate becomes obligated by the terms and the creditor’s claim obtains pre-preferential priority.
Ipso-Facto-Clauses are not respected. Set-off provisions generally remain unaltered by the proceedings.
The rules on restructuring allow for forced transfer of continued contracts in case of a business transfer.
What conditions apply to the sale of assets / the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted? Are pre-packaged sales possible?
The trustee is responsible for liquidating the assets during bankruptcy proceedings. Typically, a sale will happen with the consent of the secured creditor and on a “free and clear” basis. If a secured creditor refuses to consent, the trustee can make a request for a compulsory sale. However, for floating company charges special rules apply according to which the trustee can buy out the chargeholder in accordance with a binding assessment.
A bid from the pledgee within the security is effectively set off against the secured part of the debt.
Restructuring proceedings do not clear pledges.
The trustee, the administrator, and the restructuring accountant (and those affiliated with them) may not acquire the assets.
As for both restructuring and bankruptcy, a sale of the entire business on an asset sale basis can happen.
What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty? Is there any scope for other parties (e.g. director, partner, shareholder, lender) to incur liability for the debts of an insolvent debtor?
Please see the answer to question 3 above.
Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?
Will a local court recognise foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition? Does recognition depend on the COMI of the debtor and/or the governing law of the debt to be compromised? Has the UNCITRAL Model Law on Cross Border Insolvency or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments been adopted or is it under consideration in your country?
As the general starting point, foreign restructuring and insolvency proceedings are not recognized under Danish law. Further, Denmark has a reservation in respect of/opted-out from the judicial area and co-operation in the EU. As a result, there is no statutory framework in place in relation to overall recognition of foreign restructuring or insolvency proceedings regarding local debtors. A Danish bankruptcy order or restructuring decision is consequently as the overall starting point necessary.
Danish courts might on a case-by-case basis liaise with foreign courts, however it is the general rules that this is not possible.
Denmark has acceded to the Nordic Bankruptcy Convention and this recognizes insolvency proceedings from Scandinavian countries.
For EU countries only: Have there been any challenges to the recognition of English proceedings in your jurisdiction following the Brexit implementation date? If yes, please provide details.
No. Due to Denmark’s reservation on the judicial area, the recognition of English proceedings remains unaffected by Brexit.
Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction? What are the eligibility requirements? Are there any restrictions?
Under some requirements, foreign incorporated entities can be subject to Danish insolvency proceedings. One requirement is that the debtor conducts business activities in Denmark and has its COMI in Denmark. A Danish branch of a foreign entity is thus not sufficient for the entity to enter Danish insolvency proceeding unless the branch is in fact the main office of the entity. Often, an international group will conduct its Danish activities through a Danish subsidiary, and this Danish entity can be subject to insolvency proceedings.
How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?
Companies are treated as separate legal entities unaffected by bankruptcy proceedings of other companies in their group. It is not uncommon that some of the “healthy” companies in a group continue their operation while the majority of other group companies undergo bankruptcy proceedings.
Is your country considering adoption of the UNCITRAL Model Law on Enterprise Group Insolvency?
Did your country make any changes to its restructuring or insolvency laws in response to the Covid-19 pandemic? If so, what changes were made, what was/is their effect and were/are they temporary or permanent?
Yes. In March 2021 some amendments to the rules on in-court restructuring were implemented. The amendments are based on the suggestions of the Danish advisory council on bankruptcy; an advisory board to the Danish Ministry of Justice.
Some of the amendments were suggested before and some were new due to Covid-19, but the entire process was sped up due to the pandemic.
The amendments sought to make the restructuring rules more flexible. The former rules had generally been criticized by practitioners of being too costly and inflexible. The proceeding was rarely used compared to de facto restructurings during bankruptcy proceedings. In the first quarter of 2022, an increase of restructuring petitions indicates that, at least in some ways, the amendments have fulfilled their objective. The key points of the amendments are:
No automatic bankruptcy order if the restructuring attempt fails within the first four (or in some cases eight) weeks, i.e., a de facto timeout period now exists where it can be investigated whether restructuring is possible
No requirement to have a restructuring accountant appointed
No requirement of security to fund a subsequent bankruptcy procedure
A fast-track business transfer scheme has been introduced
The Danish Employees’ Guarantee Fund will now cover employees’ due salary claims from the start of the restructuring proceedings.
Please see the answer to question 8 above.
Are there any proposed or upcoming changes to the restructuring / insolvency regime in your country?
In 2021 the rules on restructuring were amended in accordance with the suggestions of the Danish advisory council on bankruptcy. Please see answers to questions 8 and 21 above.
However, suggestions of amending the rules on floating charges in relation to restructuring proceedings were not enacted as these – if approved – will be part of a more general revision of the legislation of charges.
Despite the Danish reservation of EU legislation on the judicial area, the EU Restructuring and Insolvency Directive (EU Directive 2019/1023) will be implemented in Danish law.
On 1 February 2022, the Danish advisory council on bankruptcy published its report on the degree to which Danish legislation will need to be amended for the rules of the Directive to be implemented. Further, the council published its suggestions to needed changes to the current legislation. The overall aim of the Directive is to facilitate that “healthy” businesses can survive through preventive measures.
The deadline for the implementation is 17 July 2022.
Is it a debtor or creditor friendly jurisdiction?
The Danish insolvency legislation is of a creditor friendly nature, generally speaking. Creditors can petition for both types of proceedings. They decide on the appointment of the trustee in case of bankruptcy and are highly involved during the restructuring proceedings through the voting system. Further, the requirements for a debtor to obtain debt rescheduling are high compared to rules in other jurisdictions.
However, with the anticipated implementation of the EU Restructuring and Insolvency Directive, a new kind of preventive and more debtor friendly restructuring procedure is likely to be introduced as e.g., only the debtor can initiate the proceedings, the proceedings are not publicly announced unless a stay on enforcement is implemented, and there is no requirement for a court appointed administrator.
Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?
The “waterfall” (priority) scheme of dividend distribution in the Danish Bankruptcy Act (cf. the answer to question 5 above) is a result of sociopolitical factors as due salaries to employees rank higher than all other regular creditors’ claims. The Danish Employees’ Guarantee Fund will cover these claims up to a certain maximum and then succeed in the claims against the estate. If an employee’s claim supersedes the maximum, this part of the claim will still rank as preferential in the hierarchy of claims, but the employee will have to file the claim with the trustee of the bankruptcy estate.
Under Danish law, trade creditors do not rank differently than finance creditors, the tax authorities or claims from other public authorities.
Further, in some sector specific areas specific creditors have been given a preferential rank, e.g. in case of bankruptcy proceedings of insurance companies, policyholders and persons benefitting from insurances have priority over regular creditors’ claims but still after employees’ claims for salary (and some of the insured persons can further receive coverage of claims from the Danish Guarantee Fund for Non-life Insurers).
What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?
The major issue of the Danish formal restructuring proceedings is how to fund the proceedings, as they often are costly. With the new amendments, cf. the answer to question 21 above, the rules have become more flexible and interesting for a management to consider. Suggested changes to ensure that a floating charge will not crystalize in case of insolvency proceedings has not been enacted yet. If these are enacted at a later point in time, it can change the dynamics of how funding is provided and secured during restructuring.
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